I hate to be the one to break it to you, but creating an estate plan isn’t quite enough. In order to make sure your plan is as up-to-date and comprehensive as possible, it’s important that you review it over the years; I often recommend that people give it a checkup every few years.
Remember that as your life changes, so must your estate plan. Here are a few check-ins that will keep you and your family protected.
1. Update Existing Planning Documents
If you have existing health care advance directives, durable powers of attorney, wills and/or revocable trusts, check to see whether it’s time for an update. For instance, if you’ve moved to a different state, purchased real estate in another state, or if the value of your assets has changed significantly from when your documents were first prepared, then your estate plan should be updated to reflect those changes.
Health issues can be reasons for a change: Have any issues arisen for you or your family? Family members with special needs, substance abuse, or mental illness may require extra assistance.
Also, make sure that the people that you’ve named in your plan as fiduciaries — such as your health care agent, attorney, executor, or trustee — are still appropriate. If your personal or professional relationships have changed, check to see whether your estate plan documents need an update.
2. Check Your Life Insurance Coverage
Particularly if relatives depend on your income, life insurance is a critical part of an estate plan. (It can also help you pass tax-free money to heirs — particularly important if you have a large estate or live in a state that has its own inheritance tax.)
As part of a regular checkup, you should consider whether any significant life changes require adjustments to your life insurance coverage. Review your beneficiary designations to make sure they name the appropriate people, and ask yourself the following questions: Have you gotten married or divorced? Have you had additional children, or have older graduated college or moved out of the house? Have you changed jobs and lost employer-provided life insurance? Has your spouse or partner cut back on his or her work schedule? Have you purchased a more expensive home with a bigger mortgage?
A yes on any of the preceding could be a reason to adjust your life insurance coverage.
3. Review Your Assets
The way you own your assets should generally work seamlessly with your estate plan. If your estate will be subject to either federal or state estate tax, for instance, it may be best to split up ownership of assets between you and your spouse to help minimize those taxes.
The federal estate tax exemption amount is now portable, meaning that a surviving spouse can claim the deceased spouse’s unused exemption amount — but state tax rules are different. Therefore, if you live in a state with an estate tax and all assets are in your spouse’s name, your heirs could face higher taxes after both of you die than if those assets were split up.
Similarly, if you have a revocable trust, you’ll probably want to make sure that you’ve transferred ownership of your assets into that trust. Doing so will help your heirs avoid the hassle and cost of probate upon your death; it will also simplify management of your assets if you become incapacitated.
A good estate plan is imperative to help protect your loved ones. Even if you have one, it’s important that you continue to take care of it.
Tracy Craig is a partner at Massachusetts-based Mirick O’Connell and chair of its Trusts and Estates Group, and a Fellow of the American College of Trust and Estate Counsel.